GREAT CANADIAN ON A BEATING STREAK

As we discussed last week, GC reported EBITDA of $34MM and margins of 35.6%, beating Street estimates by 12% on EBITDA and margins by 450 bps and our estimates by $700k and 200bps, respectively. Revenues came in light, primarly due to continued general economic malaise.

The three ongoing redevelopment projects - additional slots at View Royal and at Georgian Downs and the opening of the parcade and Canada Line station at River Rock - were completed on time and on budget. Initial results from the Canada line opening and expansion at Georgian Downs were positive, while View Royal has yet to see a pick up in gaming volumes as a result of the expansion. The British Columbia Lottery Commission (BCLC) is also in the process of refreshing many of GC's old and underperforming slots. As a reminder, in BC the BCLC is responsible for buying slots which comes at no cost to GC.

Now that it looks like Great Canadian has gotten its (finally) cost structure under control, it's all about topline growth, which unfortunetely is highly leveraged to what the BC economy does. We do expect a lift from the Winter Olympics, but management needs to keep its focus on existing operations rather than straying down the familiar expansion path.

PROPERTY LEVEL DETAIL:

River Rock

River Rock revenues declined by 12% y-o-y, driven by lower gaming and hospitality revenues. Excluding table hold, which was comping against a high 24.8% hold in 3Q08, drop fell 4% and slot handle fell 5% (a relative improvement from the 16% y-o-y drop experienced in 2Q09).

River Rock should benefit from a slot refresh and expansion that will add roughly 150 slots. The product slots at River Rock haven't been updated in over five years.

Boulevard

While table drop was flat y-o-y, slot handle fell 20% for the second sequential quarter, resulting in a 9% y-o-y decline in revenues at the property. Hospitality revenues actually held up well at the property and were up 10% y-o-y.

The property looks to be losing some market share to its revamped nieghbor Grand Villa. Grand Villa's contribution to the Local Goverment Share of Provincial Casino and Community Gaming Centre Revenues grew 12% y-o-y in 3Q09 and 14% 2Q09 (y-o-y).

Vancouver Island

While table drop declines were less bad this quarter, falling 13% (vs 25% in the 1H09), slot handle fell 10% y-o-y, showing no benefit from the incremental slots added at View Royal. The increased FDC revenues softened the y-o-y decline to 6% at the Vancouver Island properties

The 17% decline in costs at the property helped grow EBITDA 5% and improve margins by 560 bps

Nova Scotia

Table drop only fell 2% y-o-y but there was a difficult hold comparison to 3Q08 resulting in an 8% table revenue decline. Coin in was down 5%, showing no improvement over 2Q09

It appears that there were about 100 slots removed from the Nova Scotia properties

Costs declined another 200k sequentially, or 16% y-o-y, and look like they will remain at these levels barring another drop off in demand.

EBITDA decreased 7% but margins increased by 120 bps to 33.3%

BC Racinos (Hastings, Fraser, TBC)

Gaming revenues increased 2% due to the slot additions to Hastings and higher slot win, while racetrack revenues fell 12%

Revenue weakness was more than offset by an 18% reduction of costs which resulted in a 67% EBITDA increase and 10.4% expansion in margins

Georgian Downs

Gaming revenues increased 3.4% y-o-y compared to being flat y-o-y last quarter. Seems too early to tell whether the slot addition will be accompanied by more demand.

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